Coal prices fall to pre-crunch levels

After Japanese utilities and Australian miners set a benchmark annual supply deal 17% lower than last year, Australian physical coal prices have fallen to levels not seen since before the 2008/2009 financial crisis.

Mining group Glencore Xstrata Plc and Japan's Tohoku Electric Power Co have settled the price for the fiscal year beginning 1 April at US$67.80 per t. That was the same as an agreement last week between Tohoku and Rio Tinto, demonstrating the worldwide supply surplus.

The reduced pricing in the contract pulled down spot prices, with thermal coal cargoes for delivery from Australia's Newcastle terminal next month last settling at US$56 a t, down over 70% since their 2008 peak.

"Thermal coal was weaker amid soft seasonal demand from China. Contract negotiations between Japanese utilities and Australian producers are also weighing on prices on speculation of a much lower settlement price," ANZ bank stated.

The coal price decline is not limited to Asia.

European coal cargoes for delivery into Amsterdam, Rotterdam or Antwerp (ARA) last settled at US$57.70 a t, also close to levels last seen before the financial crisis of 2008/2009, and European API2 2016 coal futures, trading around US$55.50 a t, are at 10-year lows.

Underlying the sharp fall in coal prices is weak European and increasingly also Chinese demand, where the economy is growing at its slowest pace in 25 years and the government has introduced new regulation to combat pollution and protect domestic miners.

Cheaper oil, with prices falling over 50% since last June, is also weighing on coal markets as it reduces fuel costs for miners. Depreciating currencies versus the dollar from mining exporters like Australia further reduces costs.